EMIR Refit: TONA Index Recognition - UK FCA Vs EU ESMA Validation Differences
Key Takeaways
- UK and EU EMIR Refit diverge on TONA recognition: The FCA accepts TONA as a valid index in certain reporting fields, while ESMA does not, creating a clear cross-jurisdiction inconsistency.
- Validation outcomes differ for the same trade: A transaction using TONA may be accepted in UK EMIR reporting but rejected under EU EMIR, increasing the risk of breaks for dual-reporting firms.
- Specific reporting fields are impacted: The divergence affects key fields such as underlying index and floating rate indicators (e.g. fields 2.15, 2.84, 2.100), making field-level logic critical.
- Firms must implement jurisdiction-specific logic: To avoid validation errors, firms need separate UK vs EU reporting rules, rather than relying on a single standardised approach.
A notable divergence between the EU and UK versions of EMIR Refit revolves around the recognition of the Tokyo Overnight Average Rate (TONA). TONA is a widely accepted benchmark for Japanese yen interest rates, and its treatment in regulatory reporting has become a point of contention.
Under the FCA's iteration of EMIR Refit changes, TONA is considered a valid entry in specific fields related to derivatives trading. These fields include:
- Field 2.15 Indicator of the Underlying Index
- Field 2.84 Indicator of the Floating Rate of Leg 1
- Field 2.100 Indicator of the Floating Rate of Leg 2
However, the EU's version of EMIR Refit takes a different stance. TONA is not recognised as a valid entry in the same fields. This disparity highlights a nuanced difference in approach between the FCA and the EU, showcasing a more cautious standpoint from the latter.
The EU's decision to exclude TONA from these fields suggests a more reserved approach to benchmark recognition, deviating from the FCA's permissive stance. While the exact reasoning is not explicitly stated, it is plausible that the EU may have concerns regarding TONA's robustness, level of liquidity, or its limited usage within the European derivatives market.
It is essential for market participants to remain updated on the specific requirements and guidelines issued by the relevant regulatory authorities to ensure compliance with the EMIR REFIT changes in each jurisdiction.
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Frequently asked questions
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The article highlights that the FCA accepts TONA as a valid value in certain EMIR Refit fields while the EU does not. It presents this as a clear example of UK-EU validation divergence.
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The article says the FCA accepts TONA in Field 2.15 Indicator of the Underlying Index, Field 2.84 Indicator of the Floating Rate of Leg 1, and Field 2.100 Indicator of the Floating Rate of Leg 2. Those are the specific fields named in the piece.
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The article says the EU version of EMIR Refit does not recognise TONA as a valid entry in the same fields. The article describes this as a more cautious stance than the FCA's approach.
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It suggests the EU may have concerns about robustness, liquidity, or limited use in the European derivatives market. The article makes clear that this is a plausible explanation rather than a stated regulatory reason.
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They should check the specific UK or EU validation rule set that applies before populating the relevant fields. The article says firms need to stay updated on jurisdiction-specific guidance to stay compliant.